Finance ministers warned against undermining bank resolution fund

On the eve of a European Union summit at which national leaders are aiming to complete plans for a banking union, both the European Central Bank and the European Commission have warned the member states against unpicking its integrity.

Mario Draghi, the president of the ECB, appearing before a European Parliament committee on Monday (17 December), told MEPs that “decision-making may become overly complex and financing arrangements may not be adequate.”

Michel Barnier, the European commissioner for the single market, told the EU’s finance ministers yesterday (18 December) that their plans would undermine his proposed bank resolution fund and authority, which is meant to have the power to rescue and to wind up stricken banks, and is the crucial final plank of the EU’s response to the financial crisis.

The compromise being urged by member states would slow the body’s decision-making process “pointlessly”, create an “intergovernmental network” of resolution funds, and distort the single market, Barnier said.

Presenting the proposal in July, José Manuel Barroso had described how a “strong and integrated single system” would “put the [banking] sector on a sounder footing, restore confidence and overcome fragmentation in financial markets.”

But under a broad political agreement struck on 11 December, national resolution funds will merge into a single European resolution fund only over a period of ten years, and member states’ finance ministers would retain the final say over decisions on resolving ailing banks. And in the formulation proposed by Eurozone finance ministers yesterday morning (18 December), the single resolution fund would have access to common member-state funds only after ten years, which critics see as risking the perpetuation into the next decade of a ‘vicious circle’ between bad banks and weak sovereign finances.

MEPs, who on Tuesday (17 December) broadly backed the Commission’s proposal, have also weighed in against member states’ plans “There will be no Council or political entity deciding on the outcome of a bank”, said Elisa Ferreira, a Portuguese centre-left MEP who is leading the European Parlaiment’s work on the issue. Sharon Bowles, a British liberal MEP who chairs the economic and monetary affairs committee, warned: “I am dusting off my procedural toolkit to uphold the views of Parliament.” No deal was better than rushing through a bad deal before Parliament dissolves in April for elections, which is the working deadline set by EU leaders, they said.

EU finance ministers were meeting in Brussels yesterday to finalise their negotiations over the resolution fund and authority.

Sometime allies

Yet in parallel to the fallout over the single resolution fund and authority, member states and MEPs have managed to close negotiations on other elements of banking union.

Bank deposits of up to €100,000 will be guaranteed by national deposit guarantee schemes funded by banks, under a deal struck between negotiators in the early hours of yesterday morning (18 December). “We have further severed the link between taxpayers and banks”, said Peter Simon, the centre-left MEP leading the European Parliament’s response to the proposal by the European Commission.

On Thursday (12 December), European legislators agreed a rulebook for restructuring and winding-up banks that will shift the burden of costly bailouts away from taxpayers and onto banks and their shareholders and creditors. The rule book is to be applied by the single resolution authority and fund.